UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 2-39458
ERIE FAMILY LIFE INSURANCE COMPANY
| PENNSYLVANIA | 25-1186315 | |
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| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| 100 Erie Insurance Place, Erie, Pennsylvania | 16530 | |||
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| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code (814) 870-2000
| Not applicable | |
| Former name, former address and former fiscal year, if changed since last report |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
Yes No X
Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date: 9,450,000 shares of Common Stock outstanding on July 15, 2003.
1
INDEX
ERIE FAMILY LIFE INSURANCE COMPANY
| PART I. FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements (Unaudited) | |
| Statements of Financial Position - June 30, 2003 and December 31, 2002 | ||
| Statements of Operations - Three and six months ended June 30, 2003 and 2002 | ||
| Statements of Comprehensive Income - Three and six months ended June 30, 2003 and 2002 | ||
| Statements of Cash Flows - Six months ended June 30, 2003 and 2002 | ||
| Notes to Financial Statements - June 30, 2003 | ||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | |
| Item 4. | Controls and Procedures | |
| PART II. OTHER INFORMATION | ||
| Item 4. | Submission of Matters to a Vote of Security Holders | |
| Item 6. | Exhibits and Reports on Form 8-K | |
| SIGNATURES | ||
2
PART I. FINANCIAL INFORMATION
ERIE FAMILY LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL POSITION
| (Dollars in thousands) | ||||||||||
| June 30, | December 31, | |||||||||
| 2003 | 2002 | |||||||||
| (Unaudited) | ||||||||||
ASSETS |
||||||||||
Invested Assets: |
||||||||||
Fixed Maturities at fair value (amortized cost
of $1,135,457 and $986,137, respectively) |
$ | 1,247,728 | $ | 1,039,367 | ||||||
Equity Securities at fair value
(cost of $67,572 and $66,072, respectively) |
74,300 | 68,749 | ||||||||
Limited Partnerships
(cost of $15,549 and $16,352, respectively) |
15,394 | 16,053 | ||||||||
Real Estate |
1,169 | 1,210 | ||||||||
Policy Loans |
9,782 | 9,516 | ||||||||
Real Estate Mortgage Loans |
6,831 | 7,175 | ||||||||
Total Invested Assets |
$ | 1,355,204 | $ | 1,142,070 | ||||||
Cash and Cash Equivalents |
82,354 | 97,022 | ||||||||
Premiums Receivable from Policyholders |
6,451 | 6,225 | ||||||||
Reinsurance Recoverable |
1,502 | 1,713 | ||||||||
Other Receivables |
492 | 1,486 | ||||||||
Accrued Investment Income |
14,962 | 13,353 | ||||||||
Deferred Policy Acquisition Costs |
109,812 | 104,065 | ||||||||
Reserve Credit for Reinsurance Ceded |
17,120 | 14,123 | ||||||||
Prepaid Federal Income Taxes |
3,430 | 2,674 | ||||||||
Other Assets |
6,958 | 6,888 | ||||||||
Total Assets |
$ | 1,598,285 | $ | 1,389,619 | ||||||
See notes to financial statements.
3
ERIE FAMILY LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL POSITION
| (Dollars in thousands) | |||||||||||
| June 30, | December 31, | ||||||||||
| 2003 | 2002 | ||||||||||
| (Unaudited) | |||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|||||||||||
Liabilities: |
|||||||||||
Policy Liabilities and Accruals: |
|||||||||||
Future Policy Benefits |
$ | 100,537 | $ | 94,243 | |||||||
Policy and Contract Claims |
2,262 | 2,362 | |||||||||
Annuity Deposits |
902,085 | 803,675 | |||||||||
Universal Life Deposits |
143,415 | 135,551 | |||||||||
Supplementary Contracts Not
Including Life Contingencies |
619 | 625 | |||||||||
Other Policyholder Funds |
10,664 | 14,335 | |||||||||
Deferred Income Taxes |
62,824 | 41,577 | |||||||||
Reinsurance Premium Due |
1,073 | 1,591 | |||||||||
Securities Lending Collateral |
68,679 | 41,669 | |||||||||
Accounts Payable and Accrued Expenses |
11,828 | 9,673 | |||||||||
Note Payable to Erie Indemnity Company |
15,000 | 15,000 | |||||||||
Due to Affiliates |
2,522 | 2,886 | |||||||||
Dividends Payable |
3,969 | 1,985 | |||||||||
Total Liabilities |
$ | 1,325,477 | $ | 1,165,172 | |||||||
Shareholders’ Equity: |
|||||||||||
Common Stock, $.40 Par Value Per Share;
Authorized 15,000,000 Shares; 9,450,000
Shares Issued and Outstanding |
$ | 3,780 | $ | 3,780 | |||||||
Additional Paid-In Capital |
630 | 630 | |||||||||
Accumulated Other Comprehensive Income |
77,240 | 36,145 | |||||||||
Retained Earnings |
191,158 | 183,892 | |||||||||
Total Shareholders’ Equity |
$ | 272,808 | $ | 224,447 | |||||||
Total Liabilities and Shareholders’ Equity |
$ | 1,598,285 | $ | 1,389,619 | |||||||
See notes to financial statements.
4
ERIE FAMILY LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS (Unaudited)
| (Dollars in thousands, except per share data) | |||||||||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||||||
| June 30 | June 30 | ||||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||||
Revenues: |
|||||||||||||||||||
Net Policy Revenue: |
|||||||||||||||||||
Life Premiums |
$ | 13,529 | $ | 12,772 | $ | 25,771 | $ | 24,351 | |||||||||||
Group Life and Other Premiums |
805 | 746 | 1,651 | 1,497 | |||||||||||||||
Total Net Policy Revenue |
$ | 14,334 | $ | 13,518 | $ | 27,422 | $ | 25,848 | |||||||||||
Net Investment Income |
19,843 | 16,998 | 38,426 | 31,508 | |||||||||||||||
Net Realized Gains (Losses) on Investments |
2,099 | (7,698 | ) | 4,261 | (5,644 | ) | |||||||||||||
Equity in Earnings of Limited Partnerships |
120 | 2,513 | 400 | 3,582 | |||||||||||||||
Other Income |
217 | 177 | 396 | 420 | |||||||||||||||
Total Revenues |
$ | 36,613 | $ | 25,508 | $ | 70,905 | $ | 55,714 | |||||||||||
Benefits and Expenses: |
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Death Benefits |
$ | 2,761 | $ | 3,928 | $ | 6,602 | $ | 7,428 | |||||||||||
Interest on Annuity Deposits |
10,605 | 9,416 | 20,540 | 18,958 | |||||||||||||||
Interest on Universal Life Deposits |
1,827 | 1,836 | 3,606 | 3,598 | |||||||||||||||
Surrender and Other Benefits |
448 | 298 | 723 | 565 | |||||||||||||||
Increase in Future Life Policy Benefits |
1,509 | 2,141 | 3,297 | 4,706 | |||||||||||||||
Amortization of Deferred Policy Acquisition Costs |
2,417 | 2,410 | 5,732 | 4,021 | |||||||||||||||
Commissions |
1,143 | 518 | 2,483 | 1,463 | |||||||||||||||
General Expenses |
3,230 | 2,809 | 6,293 | 5,504 | |||||||||||||||
Taxes, Licenses and Fees |
707 | 614 | 1,384 | 1,227 | |||||||||||||||
Total Benefits and Expenses |
$ | 24,647 | $ | 23,970 | $ | 50,660 | $ | 47,470 | |||||||||||
Income Before Income Taxes |
$ | 11,966 | $ | 1,538 | $ | 20,245 | $ | 8,244 | |||||||||||
Provision for Federal Income Tax: |
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Current |
4,194 | 2,936 | 7,919 | 4,782 | |||||||||||||||
Deferred |
(42 | ) | (2,404 | ) | (894 | ) | (1,930 | ) | |||||||||||
Total Provision for Federal Income Tax |
4,152 | 532 | 7,025 | 2,852 | |||||||||||||||
Net Income |
$ | 7,814 | $ | 1,006 | $ | 13,220 | $ | 5,392 | |||||||||||
Net Income Per Share |
$ | 0.83 | $ | 0.11 | $ | 1.40 | $ | 0.57 | |||||||||||
Dividends Declared Per Share |
$ | 0.42 | $ | 0.42 | $ | 0.63 | $ | 0.63 | |||||||||||
See notes to financial statements.
5
ERIE FAMILY LIFE INSURANCE COMPANY
STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
| (Dollars in thousands) | ||||||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||||
| June 30 | June 30 | |||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||
Net Income |
$ | 7,814 | $ | 1,006 | $ | 13,220 | $ | 5,392 | ||||||||||
Unrealized Gains (Losses) on Securities: |
||||||||||||||||||
Unrealized Holding Gains (Losses) Arising
During Period |
49,806 | 3,007 | 67,498 | (10,875 | ) | |||||||||||||
Less: (Gains) Losses Included in Net Income |
(2,099 | ) | 7,698 | (4,261 | ) | 5,644 | ||||||||||||
Net Unrealized Holding Gains (Losses)
Arising During Period |
$ | 47,707 | $ | 10,705 | $ | 63,237 | ($ | 5,231 | ) | |||||||||
Income Tax (Expense) Benefit Related to
Unrealized Gains (Losses) |
(16,706 | ) | (3,747 | ) | (22,142 | ) | 1,831 | |||||||||||
Unrealized Appreciation (Deprecation) of
Investments, Net of Tax |
$ | 31,001 | $ | 6,958 | $ | 41,095 | ($ | 3,400 | ) | |||||||||
Comprehensive Income |
$ | 38,815 | $ | 7,964 | $ | 54,315 | $ | 1,992 | ||||||||||
See notes to financial statements.
6
ERIE FAMILY LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS (Unaudited)
| (Dollars in thousands) | ||||||||||||
| Six Months Ended | Six Months Ended | |||||||||||
| June 30, 2003 | June 30, 2002 | |||||||||||
Cash flows from operating activities: |
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Net income |
$ | 13,220 | $ | 5,392 | ||||||||
Adjustments to reconcile net income to net cash
provided by operating activities: |
||||||||||||
Amortization of deferred policy acquisition costs |
5,732 | 4,021 | ||||||||||
Other amortization |
318 | 28 | ||||||||||
Deferred federal income tax benefit |
( 894 | ) | ( 1,930 | ) | ||||||||
Realized (gains) losses on investments |
( 4,261 | ) | 5,644 | |||||||||
Equity in earnings of limited partnerships |
(400 | ) | (3,582 | ) | ||||||||
Decrease (increase) in premium and other receivables |
769 | (788 | ) | |||||||||
Increase in accrued investment income |
(1,610 | ) | (1,056 | ) | ||||||||
Increase in policy acquisition costs deferred |
(11,479 | ) | (9,892 | ) | ||||||||
Increase in other assets |
(195 | ) | (4,286 | ) | ||||||||
(Increase) decrease in reinsurance recoverables
and reserve credits |
(2,786 | ) | 653 | |||||||||
(Increase) decrease in prepaid federal income taxes |
(756 | ) | 8,538 | |||||||||
Increase in future policy benefits and claims |
6,194 | 5,593 | ||||||||||
(Decrease) increase in other Policyholder funds |
(3,671 | ) | 2,281 | |||||||||
Decrease in reinsurance premium due |
(519 | ) | (1,231 | ) | ||||||||
Increase in accounts payable and due to affiliates |
1,790 | 4,248 | ||||||||||
Net cash provided by operating activities |
$ | 1,452 | $ | 13,633 | ||||||||
Cash flows used in investing activities: |
||||||||||||
Purchase of investments: |
||||||||||||
Fixed maturities |
($ | 319,547 | ) | ($ | 275,561 | ) | ||||||
Equity securities |
(8,598 | ) | (20,817 | ) | ||||||||
Limited partnerships |
(1,910 | ) | (5,499 | ) | ||||||||
Sales/maturities of investments: |
||||||||||||
Sales of fixed maturities |
116,032 | 72,764 | ||||||||||
Calls/maturities of fixed maturities |
58,331 | 66,108 | ||||||||||
Equity securities |
7,071 | 16,712 | ||||||||||
Limited partnerships |
3,113 | 9,643 | ||||||||||
Increase (decrease) in collateral from securities lending |
27,010 | (20,915 | ) | |||||||||
Net mortgage loans |
345 | 90 | ||||||||||
Net policy loans |
(266 | ) | (429 | ) | ||||||||
Net cash used in investing activities |
($ | 118,419 | ) | ($ | 157,904 | ) | ||||||
See notes to financial statements.
7
ERIE FAMILY LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS (Unaudited) (Continued)
| (Dollars in thousands) | ||||||||||
| Six Months Ended | Six Months Ended | |||||||||
| June 30, 2003 | June 30, 2002 | |||||||||
Cash flows provided by financing activities: |
||||||||||
Annuity and supplementary
contract deposits and interest |
$ | 124,747 | $ | 81,704 | ||||||
Annuity and supplementary
contract surrenders and withdr | ||||||||||